Payday Lenders Suspend Sale of New Loans Amid COVID-19 Outbreak


March 2020

Payday Lenders Suspend Sale of New Loans Amid COVID-19 Outbreak

Payday lenders have withdrawn new loans from markets and tightened lending criteria, in response to concerns that customers won’t be able to keep up payments during the coronavirus epidemic.

Guarantor loan provider Amigo has suspended all new borrowing, “given the ongoing uncertainty that the economic implications of COVID-19 could have for our customer base.” Amigo said it was pausing new lending in order to focus on existing customers, some of whom may need forbearance due to a change in financial circumstances.

Amigo will, however, still issue loans to key workers in “emergency situations.” The lender says it is using the government’s definition of key worker, which includes those working in health, social care, education, food production and retail. 

While Amigo is known for its guarantor loans, loans backed up by a relative or friend of the borrower, it also offers high-cost bad credit and debt consolidation loans, at a representative APR of 49.9%.

Doorstep cash lender Morses Club also announced Monday that it won’t be lending to new customers.

Other high-cost creditors are toughening up their assessment criteria, which usually sees them examine just 30 to 90 days of the borrowers’ financial history. The economic chaos caused by the coronavirus outbreak and lockdown, which has cost many their jobs, has made that data unreliable.

“Lenders that I have talked to are tightening their lending, and so the flow of credit is dropping,” Jason Wassell, chief executive of the payday loans trade body the Consumer Finance Association, told the Guardian.

“All regulated lenders operate under rules of creditworthiness and affordability, with responsibility on lenders to make good decisions. For short-term lenders looking at the customer’s situation, the past 30 or 90 days are no longer a good indication of the next 90 days. Most firms are moving resources from opening new accounts to ensuring that their collections teams can cope and offer the right forbearance options.”

Subprime lenders have become more cautious about lending to customers after inadequate affordability criteria led to tighter regulation and a flood of compensation claims which overwhelmed popular brands Wonga, The Money Shop, QuickQuid, CashEuroNet and PiggyBank. Peachy became the latest payday lender to fold under the weight of compensation claims when it collapsed into administration early March.

Meanwhile, doorstep lenders have changed their practices to limit face-to-face contact with customers. Morses said its 1,695 agents have ceased home visits to sell loans and collect payments. 82,000 of its nearly 280,000 customers have now registered to make payments online instead.

Provident Financial Group, which sells loans through the MoneyBarn and Satsuma brands, also said it had paused doorstep lending and collecting through its home credit business.

Both groups said they were withdrawing financial forecasts as coronavirus roils the country’s finances. Provident said: “We expect both our credit issued and collections performance to be adversely impacted during this period of uncertainty. It is too early to quantify the potential financial impact of COVID-19 on the group’s financial performance and, therefore, we consider it prudent to withdraw any forward guidance for 2020.”

Debt charity StepChange said the withdrawal of new lending would concern some consumers but said payday loans were a risky option for those in financial straits. A spokesperson for the charity said: “Some high-cost credit lenders are not lending at the moment, and it’s understandable that people may feel concerned if they have little access to ready cash. But high-cost credit can often store up more problems than it solves for people at the best of times.

“Many lenders, utilities companies and landlords will try to be flexible at the moment, so see if you can defer your payments for a while.”